Dollar demand from banks and importers and a weaker euro lowered the rupee to close at 54.08 against the dollar.
The domestic unit had gained 30 paise to close at over one-week high of Rs 53.87 on Monday due to sustained dollar selling by exporters.
On Tuesday, the unit opened lower at 54.03 on the Interbank Foreign Exchange market on a weaker euro and subdued domestic and Asian equity markets.
The Euro fell to a seven-week low against the dollar today due to the political gridlock in Italy threatening Italy's economic reforms leading to further fears on the Euro Zone debt.
The rupee touched an intra-day low of 54.21 after which it recovered to 54 per dollar following the euro recovery.
